Banks Find Opportunity in U.S. Postal Service Woes

The U.S. bank industry, struggling to make the profits it used to, is using the struggles of another industry for its marketing: The U.S. Postal Service.

The U.S. bank industry, struggling to
make the profits it used to, is using the struggles of another
industry for its marketing: The U.S. Postal Service.

JPMorgan Chase & Co, Bank of America Corp,
Citigroup Inc and Wells Fargo & Co are all using
the looming threat of postal service cuts to sell bank services
such as electronic payments and remittance pickups that can
speed payments likely to be slowed by diminished mail service.

"It is a conversation starter," said Daniel Peltz, head of
Wells Fargo's Treasury Management division.

For banks, electronic transactions save as much as one-third
of the cost of processing checks, according to industry
estimates. The potential savings are greatest for bigger banks,
which reap additional economies of scale by running more
transactions through the computer systems they have built.

Banks are looking for any chance to save money these days,
as tough markets and a weak economy hit their profits, and
traditional revenue streams dry up due to stricter regulations.

For bank customers, the new electronic payments and other
services offer savings, too.

Greg Kerwick, a managing director in JPMorgan's Treasury
Services unit, said his team is telling customers they might
have to wait one to four days longer for invoices to reach
customers and payments to return by mail, if Saturday postal
delivery is eliminated.

His division, which helps 25,000 businesses with cash
management, estimates that waiting an extra two days for payment
would require a company that receives $5 billion of mail
payments a year to come up with an extra $27 million of working
capital.

To save that money, of course, customers must pay. For
example, using lockbox services - where the bank picks up checks
for businesses from postal plants seven days a week - can mean
as much as $2 per check for the bank, which also can earn
interest income during the maximum of three to four days they
hold a payer's money before some checks are cleared, said Nancy
Atkinson, a senior analyst with consulting firm Aite Group.

This "float period" could become even more valuable as
interest rates rise in the future, she said.

Banks, however, may find it challenging to win more payment
business because a delay in mail service is advantageous to bill
payers who want to hold onto their funds as long as possible,
Atkinson said. Payers typically drive the decision making around
how they pay a supplier, surveys by Aite Group have found.

If more business turns to electronic payments, that could
further hurt the Postal Service, which lost $5.1 billion in
fiscal year 2011 and could see annual losses upward of $21
billion by 2016 if major changes are not made, Postmaster
General Patrick Donahoe has said.

President Obama, in his budget proposal in February, called
for an end to Saturday mail delivery and other cost-cutting by
the Postal Service. The Senate is to consider a bill this week
that would allow the Postal Service to consider ending Saturday
mail after two years.

The service also has plans to close more than 200 mail
processing plants, which would end next-day delivery of First
Class Mail.

"Everybody has a desire to get away from checks and move
more electronic," JPMorgan's Kerwick said. "This is placing
greater urgency around making that happen."